Top-Shelf Construction Discovered That for Every 1 Percent Decrease in Its

question 2

Multiple Choice

Top-Shelf Construction discovered that for every 1 percent decrease in its sales, its earnings before interest and taxes (EBIT) decrease by 3.2 percent. Based on this information, we know that Top-Shelf Construction has a:

• A)debt/assets ratio equal to 3.2 times its debt/equity ratio.
• B)degree of operating leverage (DOL) equal to 3.2.
• C)current ratio (= Current assets/Current liabilities) equal to 3.2.
• D)degree of total leverage equal to 3.2.
• E)degree of financial leverage (DFL) equal to 3.2.

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Definitions:

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